Is Latham (SWIM) a Buy or Hold Following Disappointing Q3 Earnings?

Latham Group, Inc. (NASDAQ: SWIM) recently reported its third-quarter 2025 earnings, delivering a mixed bag of results that highlight both operational strength and valuation challenges. While the company outperformed on revenue and EBITDA growth, its earnings per share (EPS) fell short of expectations, triggering a modest stock price decline. This analysis evaluates Latham's fundamental performance and valuation metrics to determine whether the stock warrants a "buy" or "hold" recommendation in the current market environment.

Fundamental Strength: Revenue and EBITDA Growth Outpace Expectations

Latham's Q3 2025 results underscored its resilience in a competitive manufacturing landscape. Net sales rose 7.6% year-over-year to $161.9 million, driven by organic growth (4.7%), acquisition-related gains, and a strategic tariff-driven price increase according to the company's earnings release. Adjusted EBITDA surged 28.5% to $38.3 million, with a margin of 23.7%-a 390-basis-point improvement from the prior year-reflecting the accretive impact of the Coverstar acquisitions and lean manufacturing initiatives as reported in the earnings release. For the first nine months of 2025, adjusted EBITDA reached $89.4 million, a 16.7% increase compared to the prior year according to the financial report.

These metrics position Latham as a high-margin player in the manufacturing sector, with gross margins expanding 300 basis points to 35.4% year-to-date according to the earnings report. The company's ability to leverage acquisitions and operational efficiency to boost profitability is a key strength. However, the EPS miss-reporting $0.07 against an expected $0.10-highlighted near-term challenges, particularly in translating EBITDA growth into bottom-line results as analysts noted in the earnings call transcript.

Valuation Rationality: A Tale of Two Metrics

Latham's valuation appears polarized between optimistic and cautious indicators. On the positive side, its forward price-to-earnings (P/E) ratio has dropped from 35.9x to 27.8x, reflecting a more attractive multiple for future earnings as reported by AlphaQuery. However, the trailing twelve months (TTM) P/E ratio remains negative due to a TTM EPS of -$0.09, complicating traditional valuation comparisons according to AlphaQuery data.

The company's enterprise value-to-EBITDA (EV/EBITDA) ratio stands at 10.9x according to Marketscreener, which aligns with industry benchmarks for manufacturing firms. For context, companies in the aerospace and automotive sectors with similar EBITDA ranges trade at 10.9x and 10.2x, respectively as per FirstPageSage. This suggests Latham's valuation is in line with peers, though its stock's recent 0.96% decline post-earnings indicates market skepticism about near-term earnings potential as noted in the earnings call transcript.

Comparatively, Latham's valuation lags behind direct competitors. Karat Packaging Inc. and Myers Industries Inc., for instance, trade at P/E ratios of 14.49 and 24.31, respectively according to AlphaQuery, while the broader U.S. Industrials sector has an EV/EBITDA of 16.70 as of June 2025 as reported by Siblis Research. This disparity implies Latham may be undervalued relative to its peers, particularly given its robust EBITDA growth and margin expansion.

Guidance and Market Sentiment: Optimism Amid Uncertainty

Latham revised its 2025 guidance upward, projecting net sales of $540–550 million and adjusted EBITDA of $92–98 million as detailed in the earnings release. These updates reflect confidence in sustaining momentum from acquisitions and pricing strategies. However, analysts have noted persistent headwinds, including tepid demand in the new construction sector and broader macroeconomic uncertainties according to Marketscreener.

The stock's post-earnings reaction-despite strong EBITDA and revenue growth-underscores investor concerns about earnings consistency. A Tickeron Valuation Rating labeled the stock "slightly overvalued" in its industry as reported by FirstPageSage, a sentiment likely influenced by the negative TTM P/E and the EPS miss.

Investment Implications: A Cautious "Hold"

Latham's fundamentals are undeniably strong, with EBITDA growth and margin expansion outpacing many peers. Its EV/EBITDA of 10.9x also appears reasonable in the context of industry averages. However, the negative TTM P/E and EPS shortfall create near-term uncertainty, particularly for investors prioritizing earnings visibility.

The stock's valuation appears to balance between its operational strengths and market skepticism. While the upward guidance and industry-aligned multiples suggest potential for re-rating, the current earnings environment and macroeconomic risks warrant caution. For now, a "hold" recommendation is appropriate, with a focus on monitoring Q4 results and the company's ability to sustain EBITDA growth while improving EPS performance.